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Finance, foreign (direct) investment and Dutch disease: the case of Colombia

Finance, foreign (direct) investment and Dutch disease: the case of Colombia

Botta, Alberto, Godin, Antoine and Missaglia, Marco (2015) Finance, foreign (direct) investment and Dutch disease: the case of Colombia. [Working Paper]

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Abstract

In recent years Colombia has grown relatively rapidly, but it has been a biased growth. The energy sector (the locomotora minero-energetica, to use the rhetorical expression of President Juan Manuel Santos) grew much faster than the rest of the economy, while the manufacturing sector registered a negative rate of growth. These are classic symptoms of the well-known ‘Dutch disease’, but our purpose here is not to establish whether the Dutch disease exists or not, but rather to shed some light on the financial viability of several, simultaneous dynamics:
(i) the existence of a traditional Dutch Disease being due to a large increase in mining exports and a significant exchange rate appreciation,
(ii) a massive increase in foreign direct investment (FDI), particularly in the mining sector,
(iii) a rather passive monetary policy, aimed at increasing purchasing power via exchange rate appreciation,
(iv) more recently, a large distribution of dividends from Colombia to the rest of the world and the accumulation of mounting financial liabilities.
The paper will show that these dynamics constitute a potential danger for the stability of the Colombian economy. Some policy recommendations are also discussed.

Item Type: Working Paper
Uncontrolled Keywords: Colombia; Dutch disease; balance of payments;
Subjects: H Social Sciences > H Social Sciences (General)
Faculty / Department / Research Group: Faculty of Business > Greenwich Political Economy Research Centre (GPERC)
Related URLs:
Last Modified: 19 Nov 2015 15:14
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/14066

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